White Hats Claim 4,000 BTC from Liquid Network Amid Security Concerns

A substantial security event has impacted the Liquid Network, a Bitcoin sidechain, with approximately 4,000 Bitcoin, valued at around $319 million at the time, being withdrawn. Individuals claiming to be 'white hat' hackers have asserted responsibility through an unverified on-chain message. This has prompted the Liquid Network to temporarily halt its bridge nodes and advise exchanges to pause deposits and withdrawals for its native asset, LBTC, as investigations into the security vulnerabilities are underway.

The key figures in this incident include the Liquid Network itself, operated by Blockstream, and the alleged 'white hat' actors. The event saw the federation wallet balance plummet from over 4,200 BTC down to a mere 207.275 BTC. While the exact mechanism is under scrutiny, initial reports suggest the funds were moved via the SideSwap PAK (Peg-out Authorization Key), though Liquid insists this specific key was not compromised. Questions are being raised about the integrity of the multisignature authorization process and the associated whitelist.

The Liquid Network functions as a sidechain to Bitcoin, enabling faster and more complex transactions through pegged assets. Normally, withdrawing Bitcoin from the sidechain involves burning LBTC and then authorizing the release of actual Bitcoin through an 11-of-15 multisignature system, with funds only sent to pre-approved addresses on a whitelist. The fact that such a large sum was moved, coupled with claims of 'white hat' involvement, suggests a potential failure in these crucial security controls, distinguishing it from a typical theft.

In contrast to the security concerns on the Liquid Network, the US spot Bitcoin Exchange-Traded Funds (ETFs) have demonstrated robust market confidence. These ETFs recorded their most significant three-week inflow period of 2026, attracting approximately $3.8 billion. The past week alone saw inflows of nearly $1 billion, with one specific day witnessing $730.9 million in net inflows, marking its strongest performance since mid-January.

This divergence highlights contrasting market sentiments. While the Liquid Network faces a security crisis that could erode trust in sidechain infrastructure, the strong ETF inflows signal continued institutional and retail demand for direct Bitcoin exposure. The 'white hat' claim, if true, suggests an attempt to expose vulnerabilities rather than outright theft, though the outcome still results in a significant disruption and potential loss for participants. The incident raises important questions about the security protocols of such layer-two solutions.

Traders and observers will be closely monitoring the official investigation into the Liquid Network breach for concrete details on how the funds were moved and what specific security measures failed. The response from Blockstream and the Liquid Network community in resolving the issue and reinforcing security will be critical for restoring confidence. Simultaneously, the sustained inflows into Bitcoin ETFs will be a key indicator of ongoing bullish sentiment and demand for the primary cryptocurrency.

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Source: Cointelegraph. Summarized and rewritten by the Vexoda Newsroom. This is market news, not financial advice.